3 Lessons Convey Value of Improvest

Over the last year, I collaborated with economists Brian Buhr and Terry Hurley of the University of Minnesota, Glynn Tonsor of Kansas State University and Kelly Zering of North Carolina State University to analyze the supply-chain economics of adopting Improvest (gonadotropin-releasing factor analog, diphtheria toxoid conjugate) in the U.S. pork industry.

Improvest, introduced by Zoetis in 2011, is a safe and effective alternative to physical castration of male pigs that helps manage unpleasant odors that can occur when cooking pork. As the first immunological castration product of its kind in the U.S. marketplace, it helps producers capture the inherent economic value of raising intact male pigs for the U.S. domestic and export markets, which this research examines extensively for the first time.

Our economic analysis revealed insights on two levels.

First, we quantified both short-term cost savings and long-term revenue-generating potential. U.S. pork producers, on average, stand to gain more than $5 per head in net income with the adoption of Improvest when they deploy it in a profit-optimizing manner, compared with profit-optimizing physical castrates.

On another level, Improvest proved to be a significant case study in challenging the conventional wisdom regarding how producers frequently evaluate new technology adoption.

In this summary, we will focus on three key takeaways.

Lesson No. 1

Because producers often oversimplify the analysis of a new product or technology in the production process, especially if it impacts market weights, they may miss the full value it can bring.

Our first objective was to understand the scope of changes that Improvest brings to the production process. We reviewed literature, field data from trials using Improvest in the United States, and cut-out data from these animals. We sought to quantify the economic impacts, both positive and negative.

Our research showed that Improvest has a positive impact immediately at weaning. On average, pigs managed with Improvest show a 1.6% improved survival rate. This results in fixed-cost dilution, as more pigs are produced per site, and sold for added revenue and total farm profit. Farms gain additional value because of lower castration-related input costs in labor and supplies. From this point, Improvest reshapes the entire growth process, adding value to the male pig through dramatic improvements in feed efficiency, and enabling added weight within the constraints of the packer buying program. The exact amount producers stand to gain depends largely on their willingness to understand all of the production changes, and to modify their management and marketing procedures to capture the most value.

Lesson No. 2

Always consider impacts over the long term; don’t be fooled by short-term economic analysis.

When looking at the economic impact of a product or service, it’s a mistake to base outcomes only on present market prices and costs. Using current costs and prices as the foundation of a longer-term economic decision can lead to big errors in decision-making, as prices and costs change — sometimes dramatically — and those changes can alter the outcome of the decision. Our analysis used price and cost distributions for five years, 2007 to 2011. (We omitted the uncharacteristic 2012 drought impacts.) Our goal was to understand the range of outcomes the industry could see with Improvest, rather than a single value or average estimate.

We also looked at current feeding systems and wean-to-finish technologies to understand how limitations on production systems could affect net returns. Our analysis showed the potential for substantial gain when adopters of Improvest transition from typical industry building and feeding technologies to separate-sex feeding. While we did not evaluate building cost per se, separate-sex feeding using double-stocked, wean-to-finish barns could be the ideal strategy. The typical configuration might start with males managed with Improvest and gilts stocked together at weaning on separate sides of a double-wide, wean-to-finish building. The gilts, for instance, would be moved to a separate finisher to facilitate optimum feeding and marketing strategies by sex.

Lesson No. 3

Focusing on feed savings alone, even though feed represents the greatest single input cost, can lead to lower profit estimates.

Over time, Improvest allows more feed-efficient growth and lean-tissue accretion characteristic of the intact male (compared with the physical castrate). The carcass characteristics and feed efficiency of the physical castrate are degraded from the time of castration, and its overall growth rate is only marginally enhanced.

The superior feed efficiency and carcass lean accretion of the males managed with Improvest continue through the second of two immunizations. The second immunization, which must be given between three and 10 weeks prior to marketing, fundamentally changes the pig. At this point, the male pig dramatically increases its appetite, reducing its marginal feed efficiency and increasing fat production.

This is when a producer might mistakenly determine that any reduction in feed efficiency will hurt profitability, increasing the temptation to sell early to preserve the highest feed-efficiency gain. However, after the second dose, pigs deliver valuable meat gain (both fat and lean together), which is greater than the marginal loss in feed efficiency for several additional days (see figures 1 and 2).

In a sense, the producer is trading back some marginal feed efficiency (or cost savings) for a greater value of added meat production (revenue enhancement) during this period. This sets up the classic economic trade-off. Optimization of profits is realized when all of the added revenue gains that are greater than the costs of achieving them are realized.

Producers who see Improvest as essentially a feed-efficiency enhancer will leave substantial profits on the table. Instead of focusing on marketing at maximum feed savings, producers will need to forgo some marginal feed savings in order to benefit from added meat production and profits. This sets up a win-win scenario, as pigs managed with Improvest finish with superior overall feed conversion rates compared with physically castrated pigs.

Producers who will benefit the most from Improvest are those who are able to capture the efficiencies of its feed-efficient growth prior to second immunization, while trading back just enough of the feed-efficiency gains after this second dose to profitably add weight and the necessary fat to primal cuts such as the belly. This is important, as it assures the tremendous value of the belly in the composite carcass is maintained, along with the other primal cuts.

Male pigs managed with Improvest have been found to have a lower standard deviation of finished weights at comparable average barn weights compared with physical castrates.

But these pigs also will be slightly leaner at profit-optimum market weights. These two characteristics factor into an incentive to heavier weights for male pigs managed with Improvest, within the limits of the individual producer’s packer buying program.

In the case of the profit-optimized barrows managed with Improvest, we found that, on average, they will be 10 to 12 lb. heavier in live weight gain (4 to 6 lb. of added carcass weight) in the same number of days, compared with profit-optimized, physically castrated barrows across a wide range of hog prices and feed-cost combinations.

As prices and costs change, the optimum average end weights for each go up and down, but the differential weights and profit differences are much less variable.